Inconsistent transfer prices and the location of mobile capital

We investigate the effects of inconsistent transfer prices on the location and efficiency of capital investments made by multinational firms in a competitive equilibrium. Inconsistent transfer prices create the potential for double taxation. We examine the effects of inconsistent transfer prices on production decisions, production efficiency, and repatriation behavior. We also show how transfer price inconsistency affects the consequences of U.S. tax policy choices relating to the corporate income tax rate, deferral of U.S. taxation of active foreign source income, and the taxation of foreign income on a territorial basis instead of a worldwide basis.